How Can the Self-Employed Get Term Life Insurance?

Are you an independent professional who prefers to work on gig jobs instead of being employed by one company? If yes, then landscape of financial planning is very different for you than it is for someone who is salaried. But no matter how you earn a living, the need to have a good investment plan in place for your and your family's security is the same.

Your financial security can be easily realized though mutual fund investments, FDs, and other instruments where your profession does not matter. But what about your family's financial security, namely: Term Life Insurance coverage? Can you get it?

The answer is yes. A term life insurance policy can be tailored to meet the needs of every individual, whether you're salaried or self-employed,and serves as a safeguard for your family and even your business in the event of your demise.

Let us explore how self-employed can secure a term insurance policy in India:

What is a Term Insurance Plan for Self-Employed?

Term insurance for the self-employed covers your life for a specific duration or the policy term. It offers a death benefit payout to the nominee if you pass away within the term. In case you outlive the policy term, then there is no payout. The upside of such a plan is that the premiums are on the lower side, and you get a substantial amount of life cover for them.

Why Should You Consider a Term Plan if You Are Self Employed?

Ther are several reasons why a term life insurance plan is a good choice for self-employed individuals. Consider this:

• They provide flexibility with premium payments: As someone who is self-employed or running a business, the inconsistency of income might make it challenging to keep up with regular premium payments. You have the option to go for a single-premium term insurance plan, allowing you to pay the premium all at once when you purchase the policy.

• They cover your financial liabilities: Furthermore, those with self-employed ventures experience variable earnings, unlike salaried individuals with fixed incomes. Initiating or expanding such a business might have necessitated taking out loans that must be repaid. For your family, repaying these loans could become burdensome in your absence. A term life insurance plan can ensure that your family can repay the loans and be free of this burden when you are not around.

• You do not have any employer-sponsored plans: Individuals in formal employment often enjoy various benefits, such as health insurance, life insurance,and retirement investment plans. Since you do not have any similar backing, a term insurance plan from a reputed insurer like Edelweiss Tokio Life Insurancecan help build a financial reserve for your dependents.

• They can help in the event of critical illnesses or disabilities: Term insurance for self-employed people also includes options for additional coverage for critical illnesses and disabilities for a small additional premium at the time of policy acquisition.

How Should Self-Employed Individuals Select the Right Term Insurance Plans?

Given the multitude of plans available, it's quite a challenge to identify the appropriate one. Let's examine a few factors self-employed individuals should consider when selecting and buying a term insurance plan:

1. An Ample Sum Assured: It's critical to settle on a sum assured that's large enough to cover your outstanding debts and ongoing lifestyle maintenance costs and meet significant life goals such as your children's education.

2. Duration of the Policy: If you're self-employed, you're likely to work longer hours and past the traditional retirement age. It's advisable to choose a policy that offers coverage up to the age of 65 or 70.

3. Terms of Premium Payment: Self-employed individuals should aim to clear their premium payments as soon as feasible, for instance, through a limited premium payment term which allows for covering the full policy term within a shorter duration.

What Documents Are Needed When Self-Employed Professionals Purchase Life Insurance?

While the exact documentation requirements may differ from one insurer to another, the following is a list of documents you may need to keephandy:

• The most recent two years of Income Tax Returns with income computation, which should not be filed within the same year.

• If an income computation statement is unavailable, then three years of Income Tax Returns are required. Tax Returns filed concurrently cannot be used as documentation for insurance.

• Abalance sheet audited by a certified CA, and profit and loss accounts from the previous two years.

• Form 26AS, which shows TDS or TCS deductions from various income sources.

In case the offered coverage is not adequate for you, you might need to furnish additional credentials to get higher coverage. Insurance companies are now accepting alternative documents to assist self-employed individuals in the process of getting the life insurance coverage they need.

Your eligibility for increased coverage can be based on the following calculations:

Based on Your Annual Income:

• A multiple of the ex-showroom price of your automobile.
• A multiple of the monthly amount you invest in mutual funds.
• A multiple of your credit card's limit.
• A multiple of the monthly EMI you pay on your home loan.

Based on Your Assets:

• An assured sum equal to 50 per cent of the value of the house/shop you own, capped at Rs.2 Crore.
• An assured sum equal to 1.5 times the value of your mutual funds, fixed deposits, or portfolio statements.

Conclusion

Operating a business comes with its distinct challenges. It's easy to put off thinking about our responsibilities toward our loved ones. Give yourself the space to concentrate on your enterprise and ensure your family is protected with the optimal life insurance plan. Whether you work a salaried job or are self-employed, a life insurance plan acts as a financial buffer for your family in the face of unforeseen circumstances.